The Indian tax and regulatory space is changing at an unprecedented rate. We are witnessing policy
announcements, legislative changes, judicial precedents and clarifications almost daily. This has made
it challenging for corporate professionals to stay abreast of relevant developments. The aim of the
TaxPod series is to keep you updated with key tax and regulatory developments of the past month,
in around 5 minutes.
- Supreme Court ruling on taxation of software payments;
- Mandatory e-invoicing for B2B transactions for taxpayers having turnover of more than INR 50 crores from 1 April 2021;
- Central Board of Direct Taxes prescribes the procedure for seeking relief from double taxation for expats stranded in India.
Hello and welcome to this month’s edition of the TaxPod from Grant Thornton Bharat. We bring you the latest tax developments that took place in the last month.
Let’s begin with the key direct tax developments.
The landmark development this month is the recent Supreme Court ruling on taxation of software payments. The Apex Court has finally settled the contentious issue of the characterization of software payments in favour of the taxpayers.
The Supreme Court held that the amount paid by resident Indian end-users/distributors to non-resident computer software manufacturers/suppliers, as consideration for the resale/use of the computer software through end-user licence agreement (EULA)/distribution agreements, cannot be classified as ‘royalty’ payment made for the use of copyright in the computer software. Hence, it did not give rise to any income taxable in India and accordingly, no tax is required to be deducted at source (TDS) at the time of making such payments.
In this process, the Apex Court has also clarified many important aspects relating to the copyright, persuasive value of OECD commentary and reiterated the supremacy of tax treaties over domestic law. Going forward, while these payments would be out of the income tax net, taxpayers would need to evaluate the applicability of equalisation levy provisions in these cases.
The immediate impact of this ruling for taxpayers is likely to be in terms of review of existing contracts and whether they need to be re-negotiated as now no tax withholding is required. Further, companies that have been disputing / litigating this matter would now need to evaluate how refund claim needs to be made for the past years
In another major announcement, the Central Board of Direct Taxes (the CBDT) has stated that in case where an individual faces double taxation in FY21 due to his/her forced stay in India, on account of covid related restrictions, such an individual can approach the CBDT by furnishing Form-NR by 31 March, 2021.
Hence, it is imperative that individuals, evaluate their tax liability and seek relief possible under law.
Moving on, the CBDT has issued instructions regarding issuing of notice where income has escaped assessment for Assessment Year 2013-14 to 2017-18. In this regard, it has prescribed 5 categories of cases to be considered as ‘potential cases’ for the covered period. These categories are:
- Cases where there are audit objections
- Cases of information from any other government agency/ law enforcement agency
- Potential cases including Reports of Directorate of Income Tax (Investigation), Reports of Directorate of Intelligence & Criminal Investigation, Case from Non-filer Management System & other cases as flagged by the Directorate of Income-Tax (Systems) as per risk profiling
- Cases where information is arising out of field survey action
- Cases of information received from any Income tax authority
It has also been clarified that apart from these 5 categories, no other category of cases shall be considered for taking action under the reassessment provisions.
Finance Act 2020 had made, contributions made to the account of an employee in specified funds exceeding INR 750,000 in a year taxable as ‘perquisite’ in the hands of employee from 1 April 2021. Further, interest, dividend etc on such excess contribution is also to be considered as ‘perquisite’. The government has now notified Rule prescribing formula for calculation of annual accretion of interest, dividend etc as mentioned above. The new Rule shall come into force from 1 April 2021.
On the indirect tax front, the big announcement is that e-invoicing has been made mandatory for taxpayers having turnover of more than INR 50 crores from 1 April 2021. Accordingly, registered businesses having turnover above INR 50 Crore will have to mandatorily issue e-invoices for business to business (B2B) transactions with effect from 1 April 2021. This is one more step by government towards ease of doing business and digitization.
The Central Board of Indirect Taxes and Customs (the CBIC) has extended the due date for filing annual return for FY20. Pursuant to the recommendations of the GST Council, the due date for furnishing the annual return for FY20 has been extended from 28 February 2021 to 31 March 2021. This is a welcome move and will provide sufficient time to the businesses to comply with the requirements.
For detailed analysis of last month’s GST related developments, download our monthly GST compendium from our website www.grantthornton.in.
That’s all for this time.
We will see you next month.